In this episode of "20 Minutes VC," host Harry Stebbings interviews Joe Lonsdale, a prolific investor and entrepreneur, and general partner at 8VC. Lonsdale's remarkable achievements include co-founding Palantir and Addepar, and his investments span successful companies like Oculus and Wish. He emphasizes the importance of building companies, noting that top VCs often have experience as founders themselves. Lonsdale discusses the challenges of market timing, the value of understanding historical forces in investing, and the role of contrarian thinking in venture capital. Additionally, he touches on the potential for venture capital to be more inclusive and the need for cities to evolve to support economic growth. The conversation also covers the significance of cash runway for startups, the importance of obsessively pursuing a vision while remaining pragmatic, and the delicate balance of managing email communication.
"And if you'd like to submit guests or questions for the show, you can on Instagram at htebbings1996 with two B's." "Joe Lonsdale, general partner at eight VC." "Joe was the youngest member of the Forbes 100 Midas list." "Joe cofounded Palantir, one of the world's most impactful multibillion-dollar software companies."
The quotes introduce Joe Lonsdale, his achievements, and his role at 8VC, establishing his credentials as a successful entrepreneur and investor.
"I started off both as an investor and as an entrepreneur early in my career." "I was at PayPal, then I was at Peter Thiel's family office." "Joe, you're basically already running a fund, but you don't have money and you don't have very many people helping you. You should go raise a fund."
The quotes detail Joe's early career, his connection with notable figures like Peter Thiel, and the advice from mentors that led him to establish 8VC.
"A lot of what you see in history is you see these processes of how the world evolves." "The frameworks you use for understanding history are very analogous to the frameworks you can use to understanding conceptually how the technology world and how industries are evolving as well."
The quotes illustrate Joe's approach to investing, where understanding historical processes helps him conceptualize the evolution of technology and industries.
"Market timing is obviously very hard." "We avoided a lot of it. Our IRR targets are to get above 30% IRR." "It's not my job to be trying to win that series B anymore. That's too expensive for what we do."
The quotes explain Joe's cautious approach to market timing and his strategic decision-making to achieve targeted investment returns.
"The influx of later stage capital changes what you have to focus on and how you have to do things." "For series B's and C's and D's, you have to have some really special, unfair insider advantage."
Joe concurs with Gurley's view on the impact of later-stage capital and highlights the need for distinctive strategies to succeed in this environment.
"The biggest thing, if you see, and there's always exceptions to every rule, but the vast majority of most famous investors and top investors who've done really well in our space, especially in our generation, are people who've built the really big companies." "There's a huge advantage to that. So that's just really key."
The quotes stress the value of a builder mentality for venture capitalists, linking it to the success of prominent investors who have founded significant companies.
"Well, yes, it's three to five days, but it's 1000 miles away. So the Amazon stuff's 50 miles away. Non Amazon stuff is in sometimes over five days too, but non Amazon stuff is 1000 miles away."
This quote highlights the disparity between Amazon's efficient, localized shipping network and the longer distances non-Amazon players must cover, which can lead to longer shipping times.
"So we obviously, let's build a virtual warehouse network. Let's figure out how this works with all the carrier to optimize it."
Here, Joe Lonsdale suggests a solution to the logistics challenge by proposing the creation of a virtual warehouse network to improve efficiency for non-Amazon e-commerce players.
"So probably on the order of probably only like a fifth of our capital will go towards it this time, give or take."
Joe Lonsdale indicates that around 20% of the firm's capital is dedicated to the incubator model, reflecting a significant but not dominant portion of their investment strategy.
"And I ultimately have the final decision if we go ahead with build projects or not."
This quote clarifies Joe Lonsdale's role in the decision-making process for build projects, emphasizing his authority and the streamlined process within the firm.
"Well, for us, a part of our DNA is that we are builders."
Joe Lonsdale explains that the firm's identity as builders is a fundamental aspect of their strategy and provides them with unique advantages in the venture capital space.
"One of my rules is if McKinsey could have written this, that might be B or B plus work, it's not good enough for ABC."
Joe Lonsdale uses this quote to express the firm's standard for unique and contrarian ideas, suggesting that they aim for insights and strategies that mainstream consulting firms like McKinsey would not typically produce.
"On the investment side, I am not the single decision maker. We have a full investment committee. We vote the only rule there is that if I vote against something, it requires, like a supermajority to overrule me."
This quote illustrates the governance structure within the firm, where Joe Lonsdale has significant influence but is not the sole decision-maker on investments, ensuring a balance of power and collective decision-making.
"Both our investing and our entrepreneurship, we're looking for conceptual gaps in the world, right?"
Joe Lonsdale emphasizes the firm's strategy of identifying and capitalizing on areas where there is a significant difference between what is and what could be, particularly in sectors that are enabled by emerging technologies.
"This is something that a lot of us have been arguing about. I think you've probably seen the Yimme movement that I and many others support trying to change the rules."
Joe Lonsdale refers to the "Yes In My Backyard" (YIMBY) movement, which advocates for more housing development to address high living costs, as part of the effort to maintain Silicon Valley's innovation ecosystem despite challenges.
"zoned for cattle use right now. So you literally have our staff and people like nannies who have families who are driving home 2 hours each way past cattle land and not being able to put their kids to bed at night because they couldn't get home in time because they can't live where the cattle are living."
This quote highlights the absurdity of current zoning laws that prioritize cattle over housing for workers, leading to long commutes and negative impacts on family life.
"I think this is one of those dialectics where there's extreme truth on both sides."
Joe Lonsdale acknowledges the valid arguments on both sides of the debate regarding Silicon Valley's future dominance in the tech industry.
"It's very much scarily like 1970s China, where they just really want, basically not allow any kind of logical or rational pushback on what they're doing."
Joe Lonsdale compares the current cultural environment in Silicon Valley to that of Maoist China, suggesting an intolerance for open debate and logical discourse.
"I've hired some of the most talented people in the world, I've backed some of the most talented people in the world who are doing very important things that are changing the world in positive ways. And if they're waiting on me to get something done that's unacceptable, it's my job to get back to them."
Joe Lonsdale stresses his sense of duty to respond promptly to emails, as delays could hinder the progress of talented individuals and important projects.
"And so you have to find great talent. And then I think a lot more people have a lot of talent than people generally realize."
Joe Lonsdale discusses the importance of recognizing and cultivating talent, suggesting that many people have the potential to achieve greatness if properly guided.
"I generally say nine to twelve months is yellow alert and six months is red alert."
Joe Lonsdale provides a framework for assessing financial health, indicating that having less than six months of cash is a significant risk for a company.
"There's probably some areas where people probably should have been thinking a little bit more on the margin, about margin, or they probably should have been a little more worried about being a real business than they were."
Joe Lonsdale reflects on the need for companies to focus more on profitability and sustainable business practices rather than solely on growth and market share.
"who haven't built real mature businesses who are investing, who maybe optimize too much for revenue and don't fully understand what it takes to be like cash flowing, high margin, real business at the end of the day."
This quote highlights the importance of building mature businesses that focus on profitability and sustainability, rather than solely on revenue growth.
"And so the question is, how can you really aggressively cut burn?"
This quote reflects the necessity for startups to critically assess and reduce their burn rate to survive in a challenging economic climate.
"I think a lot of founders are a little too hesitant and blase versus what they should be in this environment."
This quote suggests that founders may be underestimating the severity of the current market conditions and the need for decisive cost-cutting measures.
"But if you're confident it's there, then the right approach is just to be completely obsessed and focused and just sure you're going to win and just do whatever you can to push yourself to get there."
This quote emphasizes the level of commitment and single-minded focus required to bridge the gap between the current state and the potential future state of a business idea.
"You cannot have healthy work life balance and build a multibillion dollar company."
This quote candidly addresses the intense commitment needed to build a highly successful company, often at the expense of personal balance.
"I think it would be really cool if venture capital was open to a lot more types of people from a lot more backgrounds."
This quote advocates for increased diversity in venture capital, which could enhance the industry's impact on the economy and society.
"And there's no way you could fake that. If you honestly are someone who lives and enjoys the success of those around you, and you have that with your teams and with your friends, I think it's just such a powerful thing."
This quote underscores the value of authenticity in celebrating the achievements of others, which can lead to stronger, more genuine relationships in personal and professional life.
"But the core investment process needs to be tied to a core small team."
This quote reflects the belief that a venture capital firm's success is closely linked to the intimate involvement of its core team, limiting the extent to which it can scale.
"You get the very top talent, really good approach in a good market. All the people I know and respecting this space love it, and we're able to lead around. That sounds great to me."
This quote explains the rationale behind excitement for a recent investment, highlighting the significance of team quality, market potential, and expert endorsement in the decision-making process.